Question

Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine.Lost Mine has offered to buy 1,500 of the US umbrellas at a price of $11 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella:Direct materials .......... $ 5.00Direct labor ............. 2.00Variable manufacturing overhead .... 3.50Fixed manufacturing overhead ...... 2.50Total cost .............. $13.00Regular sales price ........... $19.00

Required:1. Compute the incremental profit (or loss) from accepting the special order.2. Should Mohave accept the special order?3. Suppose that the special order had been to purchase 2,000 umbrellas for $9.00 each. Re-compute the incremental profit (or loss) from accepting the special order under this scenario.4. Assume that Mohave is operating at full capacity. Calculate the special-order price per unit at which Mohave would be indifferent between accepting or rejecting the special order.